The Executive Secretary at the UN Economic Commission for Africa, Vera Songwe has warned that African countries face another debt crisis and will need more long-term help than the latest G20 debt plan offers them to “ward off trouble and keep much-needed investments coming in.”
The United States, China and other G20 countries have offered the world’s poorest countries – many of which are in Africa – relief until at least mid-2021 and mapped out rules for rescheduling government debt to help fend off the risk of default in the wake of the coronavirus crisis.
With approximately 40 percent of sub-Saharan African countries already in or at risk of debt distress even before 2020, policymakers, analysts and investors have cautioned that plans to provide short-term “breathing space” might not go far enough.
Vera Songwe intimated that in 2021, “a robust liquidity and structural response, recovery and reset toolbox must be developed in partnership between emerging markets, the private sector and the G20.”
She is pushing for measures to unlock $500bn to help avoid “leaving lasting scars due to prolonged funding gaps in the poorest economies.”
The debt ratios of sub-Saharan African countries had already risen sharply before COVID-19, just more than a decade after the International Monetary Fund and World Bank launched the Highly Indebted Poor Countries (HIPC) initiative that slashed the debt burdens of some 30 low-income countries on the continent.
The IMF has projected that sub-Saharan Africa is on track for a record 3 percent economic contraction this year, while debt-to-GDP ratios have doubled during the last decade to 57 percent.
“We are definitely already in a debt crisis, there is no question about that,” said Bryan Carter, head of global emerging markets debt at HSBC, referring to poor countries around the globe.
“I worry about 2021. I worry about a deal in which many countries who will once again have to finance themselves in a slow or even recessionary economic environment where a vaccine is not yet globally available. For many countries, that is one year too many to finance themselves.”
Earlier, the Managing Director of the International Monetary Fund, Kristalina Georgieva warned ahead of the virtual Group of 20 (G20) summit that the global economy’s recovery from the coronavirus pandemic is losing steam even as vaccine breakthroughs offer hope and “the economic path ahead remains difficult and prone to setbacks.”
Mrs Georgieva stated that governments must respond to the continued economic and public health uncertainty from the COVID-19 crisis with strong, concerted policy action to “keep the pandemic from leaving indelible economic scars.”
She urged cooperation from IMF members states on three key priorities: ending the coronavirus health crisis, shoring up the economic bridge to recovery and laying down the foundations for a more just and inclusive economy for the coming decade.
The IMF’s managing director further asked countries to renew their fiscal support for hard-hit workers and businesses, including “cash transfers to households, job retention support, and augmented unemployment benefits”, many of which have already expired or are set to expire at the end of this year.
